This article first appeared in The Edge Financial Daily on September 19, 2017

PUTRAJAYA: Former prime minister Tun Dr Mahathir Mohamad testified yesterday that he was not aware that Bank Negara Malaysia (BNM) had suffered RM30 billion worth of foreign exchange (forex) losses in the early 1990s, saying he was informed that the losses only amounted to RM5.7 billion.

“If I had known the losses were RM30 billion, I would not have said ‘sometimes we lose, sometimes we win’ or ‘sometimes we make profit and sometimes we make losses’, which [then finance minister] Datuk Seri Anwar Ibrahim and [then Treasury deputy secretary-general] Tan Sri Clifford Francis Herbert claimed I said when they met me in late 1993.

“However, I don’t remember saying this,” he told the Royal Commission of Inquiry (RCI) into the forex losses.

Dr Mahathir noted that Anwar and Herbert had testified at the RCI previously that he had made such a statement when they raised the issue of the forex losses to him in late 1993.

Though he claimed not to remember making the statement, Dr Mahathir did not deny it.

He testified that it was not strange for him to have said something like that in the late 1980s, the then BNM governor Tan Sri Jaffar Hussein, had informed him that the aim of BNM’s forex trading was to balance its reserves and the nation’s economy.

“What was meant then was there were profits from forex trading by BNM.

“Therefore, when they informed me of the losses in 1992, with the knowledge of profits in 1980s, I did not find it strange to have said [that].

“However, if I had made that statement, I must have been convinced that the losses of RM30 billion were not communicated to me at that time. If it was RM30 billion, it was impossible for me to have said that,” he added.

Dr Mahathir said as the prime minister, he had no reason to suspect that BNM had acted against the powers given to it under the law and he had no personal knowledge of the losses or profits in relation to the forex trading.

“I was also not aware that Jaffar decided to take part in active forex trading to balance out the currency volatility to safeguard the reserves and nation’s economy following the negative impact of the Plaza Accord,” he told the five-man panel.

Dr Mahathir said Jaffar “did not manipulate the currency trading but he miscalculated”.

“The losses were a result of forex manipulaters who would sell currencies they didn’t have in order to drop the value,” the former prime minister said.

“Jaffar did not speculate, he managed to buy. In currency trading, currency thieves purposely sell the currencies that they do not have to drop the value. He did not do that.

“He didn’t buy billions of pounds to increase or decrease the value, he did not manipulate. What he did was a miscalculation because of the Maastricht Treaty.

“We only learned about the miscalculation after that, we didn’t know the risk. Only knew it on hindsight.”

In 1992, BNM took a position on the European currency based on the Maastricht Treaty that was to create a common currency and monetary union, with the hope that the pound sterling would go up, he said.

However, the British pound was forced out of the European Exchange Rate Mechanism.

Dr Mahathir added that he only knew about the risk of forex trading during the Asian financial crisis in 1997/98.

“We only knew long after that. On hindsight, of course, we can see the losses but not at that time,” he said.

Dr Mahathir also testified that Jaffar invited him to visit BNM’s trading room during the late 1980s.

“Jaffar wanted to show me the place where forex trading took place to strengthen the country’s economy. It lasted about half an hour,” Dr Mahathir said.

On the BNM’s audited accounts presented to the cabinet by Anwar, Dr Mahathir said there would have been no reason for him (Anwar) to have doubted the accuracy of the financial reporting, given that at that stage the accounts would have been approved by the auditor-general and the BNM governor.

“[At the time,] Anwar explained the central bank’s accounts adequately [before the cabinet] for us to have approved it,” the former prime minister told the RCI.

“After the accounts have been checked and audited by the auditor-general there is no reason for the finance minister to suspect the BNM governor or anyone else of stealing money,” he said.

“[The finance minister] accepts what the AG (auditor-general) says, if he is satisfied [with the accounts reporting], then the cabinet will be satisfied,” he said.

Dr Mahathir added that although the central bank’s reserves amount may have been depleted, at the time there was no evidence of foul play.

On former finance minister II Tan Sri Nor Mohamed Yakcop’s reappointment as BNM’s adviser in 1998, Dr Mahathir said he sought the latter’s expertise to help Malaysia through the Asian financial crisis then.

“I needed financial and currency experts to help the country overcome the crisis then. I remembered seeing Mohamed Yakcop walking on the road once. Few weeks after that, I asked him to meet me in Buenos Aires (Argentina) to give me information on forex trading.

“I then appointed him in 1998 to be part of a small committee that would have daily morning briefings on the crisis. He helped to restore the economy and our ringgit which I believed enabled Malaysia to save us from billions in losses,” he added.